Tariff uncertainty stemming from US President Donald Trump's policies has put pressure on the risk-sensitive British Pound against the safe-haven US Dollar. Despite prudent commentary from the Bank of England (BoE), the currency market has remained largely unaffected. Meanwhile, upbeat German Retail Sales and Import Prices data have failed to bolster the Euro, as increased demand for the US Dollar has undermined the EUR/USD pair. Currently, the EUR/USD is trading near 1.0400 in European markets on Friday.
In a recent announcement, President Trump confirmed that 25% tariffs on Canadian and Mexican imports will take effect on March 4. Additionally, he declared a new 10% levy on Chinese imports, compounding the 10% tariff already imposed in February. These developments have fueled geopolitical concerns, increasing the demand for the US Dollar as a haven currency.
Japanese economic indicators also play a pivotal role this week. The market projects January's Tokyo core Consumer Price Index (CPI) at 2.6% year-over-year, down from 2.8% in December, and 0.2% month-over-month, compared to 0.3% in December. This decline has contributed to the Japanese yen's extended losses on Friday, despite the Bank of Japan's (BoJ) recent decision to raise rates and its upward revision of inflation forecasts. The BoJ's inflation target of 2% has been surpassed for the fourth consecutive month, though the Tokyo Core CPI surprised to the downside.
The US Bureau of Economic Analysis is set to release the Personal Consumption Expenditures (PCE) Price Index data for January at 13:30 GMT on Friday. The core PCE Price Index, excluding volatile food and energy prices, is projected to increase by 0.3% month-over-month in January. This data release will be closely monitored by market participants, as the Federal Reserve is not expected to lower rates before May unless there is an unexpected shift in inflation or employment figures.
The interplay of these economic indicators highlights the complex landscape global currencies navigate amid geopolitical tensions and domestic economic policies. While Japan's Producer Price Index (PPI), CPI, and BoJ Core CPI have all accelerated recently, Tokyo's Core CPI offers a contrasting narrative with its downturn.